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December 16, 2005: The Honorable Max Baucus: Ranking Minority Member: Committee on Finance: United States Senate: Subject: Medicare: Contingency Plans to Address Potential Problems with the Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug Coverage: Dear Senator Baucus: The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) established a voluntary outpatient prescription drug benefit, known as Medicare Part D.[Footnote 1] The Centers for Medicare & Medicaid Services (CMS) is responsible for implementing this benefit. This new drug coverage will be provided through competing private Part D plans sponsored by health care organizations, which may charge premiums, deductibles, or copayments for drugs.[Footnote 2] As a result of MMA, on January 1, 2006, drug coverage for dual-eligible beneficiaries will transition from Medicaid to Medicare Part D. This transition will occur for approximately 6 million full-benefit dual- eligible beneficiaries--Medicare beneficiaries who receive full Medicaid benefits for services not covered by Medicare.[Footnote 3] CMS is in the process of implementing this transition. During May and June 2005, CMS mailed notices to these beneficiaries informing them of the transition in coverage and that they will receive a subsidy to cover their entire deductible and help cover any prescription drug plan (PDP) premiums. During October and November 2005, CMS automatically assigned dual-eligible beneficiaries to PDPs and mailed notices to these beneficiaries informing them of the assignment and also that they may select a different PDP if they wish.[Footnote 4] If they do not switch from their assigned PDP by December 31, 2005, CMS will automatically enroll them in that drug plan with coverage effective January 1, 2006. MMA provides that, after that date, dual-eligible beneficiaries may switch PDPs at any time.[Footnote 5] Dual-eligible beneficiaries are poorer and tend to have far more extensive health care needs than other Medicare beneficiaries.[Footnote 6] They are also more likely to be disabled, at least 85 years old, or to have cognitive impairments.[Footnote 7] You raised concerns that the single-day transition from one type of drug coverage to another could create difficulties in ensuring that prescriptions for this vulnerable population are filled. You asked us to review (1) the potential problems that may arise during the transition and (2) the contingency plans that CMS, PDPs, and states have developed to respond to potential problems with the transition. Enclosure I contains information we provided during our November 14, 2005 briefing to your staff. You also expressed concerns that dual-eligible beneficiaries in the areas affected by Hurricane Katrina may not be able to obtain necessary drugs on and after January 1, 2006.[Footnote 8] Enclosure II contains information we provided during our briefing to your staff on contingency plans related to this concern. To address these objectives, we interviewed officials from CMS and from Medicaid agencies in California, Montana, and Texas--states with large urban or rural populations. We interviewed representatives from three organizations offering Medicare PDPs, eleven drug-store chains, and the CMS contractor responsible for implementing the Eligibility Transaction--a contingency plan designed to identify the PDP in which a beneficiary is enrolled. In addition, we reviewed CMS's plan for managing the transition and the transition plans of three organizations offering PDPs, which outline their plans to assist beneficiaries who are transitioning to Medicare drug coverage. We spoke with officials from the American Association of Homes and Services for the Aging, the Center for Medicare Advocacy, the Commonwealth Fund, the Kaiser Family Foundation, the Long Term Care Pharmacy Alliance, the Medicare Rights Center, the National Association of Chain Drug Stores, and the National Community Pharmacists Association. We also spoke with two independent researchers. We conducted our work from September 2005 through December 2005 in accordance with generally accepted government auditing standards. Results in Brief: We identified three potential problems that may leave some dual- eligible beneficiaries facing difficulties immediately obtaining necessary drugs beginning January 1, 2006. The likelihood and magnitude of these potential problems is not known. First, some individuals may not be identified for automatic enrollment in a PDP due to potential inaccuracies in state or federal data. Second, not all beneficiaries who become dually eligible in late 2005 and beyond may be identified and automatically enrolled by the date they become dually eligible. Third, given that MMA and implementing regulations require that dual- eligible beneficiaries be randomly enrolled in PDPs using two criteria- -the region in which the beneficiary resides and the amount of the PDP premium--beneficiaries' prescription drugs may not be on their PDP formulary or their customary pharmacy may not be in their PDP pharmacy network. CMS, PDP, and state contingency plans address potential problems with the transition. Although each of these contingency plans is useful in mitigating risks for dual-eligible beneficiaries, their effectiveness is uncertain. For dual-eligible beneficiaries who do not have Medicare drug coverage because they were either not identified and enrolled on January 1, 2006 or are newly qualified dual-eligible beneficiaries, CMS has developed a point-of-sale enrollment mechanism designed to enable pharmacies to assist these beneficiaries in obtaining immediate Part D coverage. The agency signed a contract with a designated PDP on November 22, 2005 to implement this mechanism. Because these arrangements were completed less than 6 weeks before the transition is to occur, limited time remains to educate all pharmacies about its availability and details of its operation. For beneficiaries who were enrolled in a PDP but do not have their PDP information, CMS has facilitated a new information-technology process, known as the Eligibility Transaction, that will allow pharmacies to identify a beneficiary's PDP and provide the beneficiary with the PDP's contact information. As with the point-of-sale enrollment mechanism, it is unclear to what extent pharmacies are informed about the Eligibility Transaction and will use it. Despite CMS efforts to publicize this tool to industry organizations, a pharmacy industry association representative stated that it is unclear how many independent drug stores, which dispense the majority of the nation's retail prescription drugs, plan to use the Eligibility Transaction. To assist dual-eligible beneficiaries with prescriptions for drugs not on their PDP's formulary, according to CMS, all PDPs will offer dual- eligible beneficiaries at network pharmacies first fills of prescriptions for drugs not covered by formularies. First fills will give beneficiaries time to work with a physician to switch to a formulary drug, file an appeal for a formulary exception with their PDP, or switch PDPs. However, in order to obtain a first fill without paying out-of-pocket, beneficiaries must be at a network pharmacy.[Footnote 9] CMS officials stated that PDP formularies are robust and access to PDP pharmacy networks is broad. However, they noted that PDP formularies typically include upwards of 80 percent of the 100 most commonly used drugs. We did not evaluate the extensiveness of PDP formularies or pharmacy networks. To provide beneficiaries with time to resolve problems they may encounter and thereby minimize disruptions in treatment, state Medicaid agencies have the option to offer early or extended drug refills to dual-eligible beneficiaries prior to January 1, 2006. However, because of financial disincentives associated with the transition, state officials indicated that not all states are expected to provide such refills. Agency Comments and Our Response: CMS reviewed a draft of this report and provided written comments, which appear in enclosure III. In its comments, CMS objected to any implication that it has not taken all steps to keep potential problems to a minimum. Furthermore, the agency asserted that its contingency plans fully address the problems we describe and that they will ensure that dual-eligible beneficiaries will have immediate access to needed drugs. While we credit CMS for taking steps to mitigate potential risk for dual-eligible beneficiaries, we believe that the agency's complete confidence in contingency plans that have yet to be fully tested, publicized, or implemented may be premature. Our report provides valid reasons why the effectiveness of these plans is uncertain at this time. CMS also suggested that we restructure the report. It proposed that (1) the discussion of potential problems be provided as set-up or background information, (2) the finding on potential problems focus on the efforts CMS has taken that ensure continuity of coverage for dual- eligible beneficiaries, and (3) the "Results in Brief" section be expanded to more fully describe CMS contingency plans. We organized this report to address the two objectives set forth by our requester-- to review potential problems associated with the transition and to review contingency plans developed to address them. In this way, the reader is first given information on anticipated problems that may arise from MMA transition provisions as context for understanding the strengths and weaknesses of various contingency plans. Our "Results in Brief" provides a balanced description of what each contingency plan is designed to do and its potential effectiveness. In addition, CMS contended that we did not adequately take into account new information provided to us on November 18, 2005. The agency referred specifically to our discussion of its point-of-sale enrollment mechanism to guarantee immediate access to needed drugs for any dual- eligible beneficiary not already enrolled in a PDP. At our meeting on November 18, agency officials reported that negotiations for the point- of-sale enrollment mechanism had not been finalized and details about the prospective contract could not be discussed. Our draft described the design and prospective nature of this contingency plan. While the draft report was at CMS for review, the agency signed and publicly announced the contract with its designated point-of-sale PDP. We have revised our report to reflect this new information. CMS provided technical comments which we incorporated as appropriate. Also, the agency asked us to publish several informational documents attached to its comments. We reviewed these documents and determined that they did not address our findings and conclusions. We are sending a copy of this report to the Administrator of CMS and appropriate congressional committees. We will also make copies available to others on request. In addition, the report is available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff have any questions, please contact me at (202) 512- 7119 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of the report. GAO staff who made major contributions to this report are listed in enclosure IV. Sincerely yours, Signed by: Kathleen M. King: Director, Health Care: Enclosures--4: Enclosure I: [See PDF for images] [End of slide presentation] [End of section] Enclosure II: Potential Problems and Contingency Plans Related to the Transition of Dual-Eligible Beneficiaries Affected By Hurricane Katrina: On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf Coast, causing widespread devastation, particularly in Alabama, Louisiana, and Mississippi. Concerns have been raised related to dual- eligible beneficiaries in the areas affected by the hurricane and whether they will be able to obtain necessary drugs through Medicare Part D on or after January 1, 2006.[Footnote 10] Specifically, these beneficiaries may have evacuated and may no longer live in the region in which they were assigned to a prescription drug plan (PDP). Alternatively, certain dual-eligible beneficiaries may still reside in the region in which they were assigned to a PDP, but the extent to which pharmacies in the hurricane-affected areas will be available to fill prescriptions is not known. To address problems dual-eligible beneficiaries affected by Hurricane Katrina may have in obtaining drugs, the Centers for Medicare & Medicaid Services (CMS) has created a system that allows beneficiaries assigned to PDPs in Alabama, Louisiana, or Mississippi to immediately obtain drugs from any pharmacy they visit. Under this plan, pharmacies will electronically submit a bill for the drugs to the beneficiary's PDP.[Footnote 11] If the PDP's network does not include that pharmacy, the PDP will reject the bill. In addition, if the PDP serves the hurricane-affected areas of Alabama, Louisiana, or Mississippi, it will notify the pharmacy that the beneficiary may be a hurricane evacuee and advise the pharmacy to contact the PDP. The pharmacy will contact the beneficiary's PDP and work with it to submit an out-of-network bill. Submitting an out-of-network bill may take up to 24 hours, but the pharmacy will immediately collect the beneficiary's copayment and immediately dispense their drugs. To compensate the out-of-network pharmacies for the additional effort they must make in these cases, PDPs will reimburse them the retail price for the drug, with Medicare contributing the difference between the retail price and the PDP's negotiated price for network pharmacies. CMS has directed PDPs to follow up with beneficiaries it identifies through this process. The agency reported that if the original PDP determines that the beneficiary has permanently relocated, that PDP will assist them in switching to another PDP that serves their region. If the original PDP determines that the beneficiary may return to their home in Alabama, Louisiana, or Mississippi, or never left but cannot access a network pharmacy, it will attempt to incorporate the pharmacy that the beneficiary accessed into its network. One PDP representative we spoke with stated that this plan was quite feasible. Another stated that it was cumbersome, but useful. Two pharmacy industry organizations we spoke with did not express concern about this plan, and one stated that it was useful and workable. [End of section] Enclosure III: Comments from the Centers for Medicare & Medicaid Services: DEPARTMENT OF HEALTH & HUMAN SERVICES: Centers for Medicare & Medicaid Services: Administrator: Washington, DC 20201: DEC 1 2005: TO: Kathleen M. King: Director, Health Care: Government Accountability Office: FROM: Mark B. McClellan, M.D., Ph.D.: Administrator: Centers for Medicare & Medicaid Services: SUBJECT: GAO Draft Correspondence: MEDICARE: Contingency Plans to Address Potential Problems with the Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug Coverage (GAO-06-278R): Thank you for the opportunity to review and comment on the GAO draft correspondence entitled, MEDICARE: Contingency Plans to Address Potential Problems with the Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug Coverage. The Centers for Medicare & Medicaid Services (CMS) has significant concerns about the GAO findings. CMS has been working diligently on the transition from Medicaid to Medicare drug coverage for full-benefit dual eligible beneficiaries, and as a result, these individuals will get effective, comprehensive prescription drug coverage when the new Medicare prescription drug benefit begins on January 1, 2006. Establishing a standard of absolute perfection for this transition, when dealing with over 6 million dual eligible individuals, is clearly untenable-and certainly State Medicaid programs do not meet such a standard with access to drugs today. Yet even in GAO's own analysis, GAO notes in slide 24 that CMS contingency plans will allow a dual eligible beneficiary to "immediately" obtain needed drugs. Consequently, we object to any implication that we have not taken all steps to keep potential problems to a minimum, including establishing a point-of-sale safety net for any dual eligible individual that somehow are not identified and assigned to a plan in advance of January 1, 2006. Thus, we believe that the CMS contingency plans have fully addressed the problems that GAO was asked to investigate, and that they will produce prescription drug coverage for the dual eligible population that is at least as accessible and comprehensive as the coverage they have had in the past. As discussed in detail below, CMS has provided a great deal of information to answer the two key questions raised by the Senate Finance Committee's Ranking Minority Member. Thus, we believe that both the letter to Senator Baucus and the report's major findings should be revised to reflect the fact that CMS has developed appropriate contingency plans to address potential problems, and that these contingency plans will ensure that dual eligible beneficiaries will have immediate access to needed drugs. Moreover, CMS remains concerned with the inappropriate and premature distribution of the preliminary GAO findings, which prompted inaccurate press coverage of the correspondence in the November 18, 2005 Washington Post concerning the GAO's alleged findings. General Comments: CMS has made an intensive effort to identify and auto-enroll dual eligible individuals prior to the effective date of their Medicare Part D eligibility. However, it is possible that some individuals may go to pharmacies before they have been auto-enrolled in a Part D plan. For this reason CMS has developed a process for a point-of-sale interaction to ensure full-benefit dual eligible beneficiaries experience no coverage gap. Beneficiaries who present at a pharmacy with evidence of both Medicaid and Medicare eligibility, but without current enrollment in a Part D plan, can have the claim for their medication submitted to a single account for payment. The beneficiary can leave the pharmacy with a filled prescription, and a CMS contractor will immediately follow up to validate eligibility and facilitate enrollment of the full- benefit dual eligible into a Part D plan. We described this process to the GAO at our exit conference on November 18, 2005 (a detailed description of this process is attached). Therefore, as we stated at the time, CMS believes the first formal finding of the report should reflect the fact that CMS has established effective contingency plans to ensure that dual-eligible beneficiaries will be able to obtain comprehensive coverage and obtain necessary drugs beginning January 1, 2006. Similarly, we recommend that the second finding of the report should be revised substantially. Currently, the "Results in Brief" section of the cover letter to the report includes only one sentence noting that CMS contingency plans "address potential problems with the transition but have limitations." This statement is preceded by a full paragraph laying out the potential problems under investigation and then another paragraph describing the alleged limitations. Instead, we believe that this key section of the letter should (1) clarify that the potential problems identified in the first paragraph were the intended subject of the report-not the findings; and (2) prominently describe the CMS contingency plans. Thus, despite extensive discussions at the November 18, 2005, GAO exit conference, we do not believe GAO has adequately taken into account the new information provided by CMS. Most notably, although additional technical information was incorporated into both the GAO letter to Senator Baucus and the GAO report itself, these documents continue to assert that (1) some dual-eligible beneficiaries will encounter difficulties immediately obtaining necessary drugs, and (2) some dual- eligible beneficiaries will face 1-2 month coverage gaps. Neither of these assertions is accurate and the GAO's own slide presentation recognizes this. For example, slide 24 of the report states that, "The pharmacy will submit a bill to a designated PDP, which will provide interim coverage to allow the beneficiary to immediately obtain drugs while a CMS contractor officially verifies their eligibility." (Emphasis added.) CMS' point of sale enrollment system guarantees immediate access to needed drugs for any dual eligible beneficiary not already enrolled in a prescription drug plan. [End of section] Enclosure IV: GAO Contact and Staff Acknowledgments: GAO Contact: Kathleen M. King, (202) 512-7119 or kingk@gao.gov. Acknowledgments: In addition to the contact named above, Rosamond Katz, Assistant Director; Joanna L. Hiatt; and Grace A. Materon made key contributions to this report. (290493): FOOTNOTES [1] Pub. L. No. 108-173, ยง 101, 117 Stat. 2066, 2071-2152. [2] MMA and CMS regulations require that each Part D plan meet standards as to the categories of drugs it must cover, or include on its formulary, and the extent of its pharmacy networks. Within these standards, the specific formulary and pharmacy network of each plan may vary. However, CMS required all plans to cover all or substantially all drugs in six categories, including antidepressants, antipsychotics, anticonvulsants, anticancer drugs, immunosuppressants, and human immunodeficiency virus and acquired immunodeficiency syndrome drugs. [3] Of these 6 million beneficiaries, approximately 0.6 million are enrolled in managed care organizations and other plans and will not be addressed in this report. There are also approximately 1 million other dual-eligible beneficiaries, known as partial-benefit dual-eligible beneficiaries, who do not receive Medicaid drug coverage, and thus, are not involved in this transition. [4] According to CMS, as of November 2005, the agency had identified approximately 6.1 million dual-eligible beneficiaries. Of these, approximately 5.5 million individuals have been automatically assigned to a PDP. Most of the remaining 0.6 million beneficiaries are enrolled in and will receive drug coverage through managed care organizations or other plans. [5] According to CMS, beneficiaries' choices will only be effective the first day of the month following the month in which their new PDP receives their completed application. [6] Medicare Payment Advisory Commission, Report to the Congress: New Approaches in Medicare (Washington, D.C.: June 2004). Includes all dual- eligible beneficiaries, both full-and partial-benefit. [7] Medicare Payment Advisory Commission, Report to the Congress. Includes all dual-eligible beneficiaries, both full-and partial- benefit. [8] On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf Coast, causing widespread devastation, particularly in Alabama, Louisiana, and Mississippi. [9] At out-of-network pharmacies, beneficiaries may pay the retail price out-of-pocket for their drugs and submit a claim for reimbursement to their PDP. However, CMS acknowledged that it is unlikely that dual-eligible beneficiaries will be able to pay the retail price out-of-pocket. [10] Major hurricanes also made landfall in other areas of the United States in 2005. However, contingency plans related to the transition are in place only with respect to Alabama, Louisiana, and Mississippi. [11] If necessary, pharmacies will first use the Eligibility Transaction to determine the PDP to which the beneficiary belongs.